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Airbnb and New York City certainly don’t have a love affair with one another.

Even though New York City is the $30-billion company’s number one market in the U.S., local government in New York has never rolled out the welcome mat to the short-term rental platform and its peers.

The past three years, in particular, have been fraught with a number of battles over what’s legal or illegal when it comes to short-term rentals (note: it’s mostly illegal), and what kind of an impact — both good and bad — these alternative accommodations are having for travelers and local communities.

The most recent battle between New York City lawmakers and Airbnb came to an end on Dec. 2. That was when Airbnb decided to drop its lawsuit against New York City for the passage of a new advertising law that would heavily fine New Yorkers who advertise short-term rentals that are in violation of the city’s Multiple Dwelling Law.

Airbnb had argued that the law was a violation of the Federal Communications Decency Act (CDA). Section 230 of the CDA protects free speech online by removing liability for an online publisher for content that is posted on their sites by third-party users in most cases.

As Skift has noted before, there was scant wiggle room for Airbnb to make its case that the new advertising law violated Section 230 of the CDA by enforcing fines against platforms like themselves and their peers.

Eric Goldman, a professor at Santa Clara University School of Law and an expert on legal issues relating to websites, did note, however, that some of the language in the law was unclear as to whether or not the fines would go toward the people who are renting illegal listings, or toward the platforms through which people advertise these illegal listings.

“Even if the word ‘advertise’ is meant to apply to the advertiser and not the website, it needs another clause stipulating that the website isn’t being targeted,” Goldman said.

So, in that way, Goldman noted, Airbnb could say it succeeded in ensuring that the city would not fine Airbnb or its peers for violations of the law, thereby upholding Section 230 of the CDA. While this concession was a victory for upholding the CDA, it wasn’t necessarily a win for thousands of New York City hosts, or for the company’s $30-billion valuation.

So, what happens now? What does this mean for Airbnb and its peers? And for its hosts? And for cities like New York?

Enforcement of the Law

First things first: So, how is this new law going to be enforced?

Skift spoke to New York State Assembly member Linda B. Rosenthal (D-Manhattan), who sponsored the new advertising law, about how the law will be enforced.

Rosenthal said the advertising law is not currently being enforced, but the New York City Mayor’s Office of Special Enforcement, which is currently enforcing the city’s Multiple Dwelling Law, will be the office tasked with enforcing it.

“The city is writing up regulations and rules governing implementation of the law,” she said. “They said that by the end of the month that it will be ready.” The Mayor’s Office of Special Enforcement will also be holding a public hearing on December 19 to discuss the new advertising law.

In 2015, the Mayor’s Office of Special Enforcement received $10 million to stamp out illegal hotels in the city over the next three years, but will this be enough to police the thousands of illegal listings found on Airbnb and its peers?

That’s still debatable but Rosenthal, for one, believes that with the new advertising law in place, the city will “have plenty of tools to go after the big operators who have taken thousands of units off the market.” She added, “I don’t view this as an opportunity to go after Joe Schmo, and that’s not the intent. That’s not what they [the Mayor’s Office of Special Enforcement] should use their resources for. It just doesn’t make sense in terms of investment of time, energy, and using up staff money to go after someone who puts up an ad once in a while. The people with multiple listings — that’s who we’re looking for, and it’s easy to find them.”

Other Cities

Will other cities craft similar legislation? Well, in some cases they already have, as we’ve seen in cities like Santa Monica, Calif., and Miami.

Airbnb is currently suing the city of Santa Monica and in Miami, the fines for hosts who violate short-term rental laws is even higher: $20,000. In New York City, the fines range from $1,000 to $7,500, depending on the number of violations.

Rosenthal, for one, hopes other cities facing affordable housing crises, heed New York’s example. “So many cities around the world are grappling with the deleterious impact of Airbnb taking over their housing markets,” she said. “I hope the settlement of this and the fact that the law is now in operation will give them ideas on how to approach the situation in their towns.”

Other cities wanting to limit the number of illegal short-term rental listings being posted on sites like Airbnb, HomeAway, and others will likely come up with similar legislation that holds the hosts, or those renting out their homes, subject to hefty fines, instead of going after the platforms themselves.

“We can expect to see more laws restricting short-term rentals across the country,” Goldman said. “We can also expect to see, at least in key markets, more enforcement efforts to remove illegal listings. The net effect for Airbnb is its overall addressable market is shrinking and losing listings will make the site less valuable for customers. This is where it’s a little hard to tell if this was a win, or a loss, for Airbnb.”

Impact on Airbnb and its Peers

New York City is Airbnb’s top market in the U.S. in terms of the number of listings it has — and how much money it generates for the company (see our related story, 3 Charts That Better Explain Airbnb in New York City). Once this new advertising law goes into effect, it could potentially have a chilling effect on the number of listings Airbnb has in New York.

According to a report released by Airbnb in July 2016, looking at numbers from June 1, 2015, to June 1, 2016, the platform had a total of 41,373 active listings in New York City. Of those listings, up to 53.7 percent (22,253) of those listings could, arguably, be considered in violation of the city’s current Multiple Dwelling Law because they are listings for entire homes/apartments.

According to an October 2016 Airbnb Market Report from Airdna for New York City, there were a total of 48,773 listings for New York City on Airbnb at the beginning of October 2016, but only about 26,398 active listings.

The new advertising law doesn’t change New York’s current Multiple Dwelling Law, which was last revised in 2010 and was actively ignored by Airbnb, HomeAway, and their peers. This law prohibits most apartments (buildings with three or more units) in New York City from being rented out for less than 30 days. This means that the majority of entire home/apartment listings that you find on Airbnb and other sites for New York City are illegal, especially if you can book them for a period of fewer than 30 days. However, if the host is present and is renting out a spare room, for example, that is considered legal. One- and two-family homes are also exempt.

In July, Skift spoke to Bradley Tusk, founder and CEO of Tusk Ventures and Tusk Strategies. Tusk is the ex-Bloomberg aide who helped Uber navigate New York City’s regulatory hurdles and the Taxi and Limousine Commission. He specializes in helping disruptive companies like Uber, FanDuel, and Tesla handle political challenges.

Tusk said, at the time, that should the new advertising law pass, it wouldn’t be catastrophic for Airbnb. But it might hurt is valuation. “I don’t think it changes their ability to operate in most places in the world,” Tusk said. “It may just mean that instead of being a $30 billion company, they’re a $20 billion company. It’s just a question of pricing.”

Goldman, also seemed to suggest the same: “Yes, those listings [affected by the new advertising law] are illegal anyway, so Airbnb isn’t losing anything they should have had in the first place, you could say. But they will have to adjust their revenue projections down.”

Some industry watchers have speculated that Airbnb’s recent entry into the tours and activities market may also have been an insurance policy to compensate for potential lost income from short-term rentals in cities like San Francisco and New York City. Whether Airbnb’s gamble on Trips will succeed, it’s still too early to tell.

Airbnb also isn’t the only one who is being impacted by this new law. Even though it’s often become the face of short-term rental regulatory battles worldwide, other players in the space, such as HomeAway, FlipKey, VRBO, and the like, will also feel the effects of tighter regulations.

Skift reached out to HomeAway to comment on the Airbnb’s decision to dismiss its lawsuit against New York City but did not receive a comment prior to publication of this article.

“The New York law as currently constituted is not a viable solution to short-term rental regulation, nor is it a silver bullet for solving New York City’s housing shortage,” said Matthew Kiessling, VP of short-term rental policy for The Travel Technology Association, an organization that represents online travel platforms such as Airbnb and HomeAway. “The hope would be that with this clarification of the state law and the end of the lawsuit, the door has cracked open a bit for a collaborative dialogue between New York policymakers and the short-term rental platforms. After all, the fact remains that thousands of New Yorkers rely on the extra income they earn from renting out their homes, and travelers are increasingly opting for short-term rentals as their accommodations of choice.”

The Real Losers of This Latest Battle

If there is a “loser” in this latest battle between Airbnb and New York City, it would be those “thousands of New Yorkers” on Airbnb and other platforms who are renting out their homes, albeit in violation of the current short-term rental laws. With the new advertising law in place, many of Airbnb’s hosts could soon be footing a bill that, collectively, could amount to $22.3 million for just the first-time violations.

Airbnb’s lawsuit against New York City affirmed who the real targets of this law are, and assured that Airbnb and its peers wouldn’t have to pay for any fines.

The irony of this fact wasn’t lost on Rosenthal. She said, “The law as written was careful to abide by the CDA, which says the platforms cannot be fined. Airbnb [in filing its lawsuit against New York City], I guess, wanted to be extra sure that it wouldn’t be fined, which is kind of ironic because they keep promoting what they say are hosts’ interests — middle-class families — but they wanted to make sure hosts would be fined, not them.”

According to Airbnb, 96 percent of its entire-home hosts in New York City have just one listing, and the median number of nights booked per listing is only 41 nights over the past year. The company also said the median annual earnings, citywide, per listing, is only $4,800.

What Will Airbnb Do?

Airbnb’s approaches to working with cities, however, seem to be changing. In fact, the company appears to be much more willing to compromise than it has in years past, by imposing limits on the number of nights that listings can be rented in Amsterdam and London; enacting a One Host, One Home policy in New York City and San Francisco; and saying it is willing to share some data on its users with cities.

In response to Airbnb’s decision to dismiss the suit, Airbnb spokesman Peter Schottenfels said in a statement, “We very much see this as a material step forward for our hosts, with Airbnb and the City agreeing to ‘work cooperatively on ways to address New York City’s permanent housing shortage, including through host compliance with Airbnb’s One Host, One Home policy.’ We look forward to using this as a basis to finding an approach that protects responsible New Yorkers while cracking down on illegal hotels that remove permanent housing off the market or create unsafe spaces.”

The One Host, One Home policy, which went into effect on November 1 in New York and San Francisco, enables Airbnb to prohibit a single individual in those cities from having multiple listings for multiple homes.

In addition to enabling this feature on its platform, Airbnb’s global head of policy and public affairs, Chris Lehane, has said the company wants to work with cities to create “simple, mandatory registration systems” for Airbnb hosts, similar to the one Airbnb has in Chicago. Airbnb also wants to develop a tax agreement relationship with New York, as it already has established in San Francisco.

In San Francisco, a mandatory registration system for short-term rentals already exists, but the city has had difficulty in getting hosts to comply with the registration laws, and Airbnb doesn’t require its hosts to be registered. An April report from the city’s Budget and Legislative Analyst Office showed that up to 80 percent of short-term rental hosts in the city were not registered.

In November, Lehane penned an opinion piece in the San Francisco Chronicle, asking the city to work with Airbnb to “create a modern, simplified registration system” and saying Airbnb would be “willing to share data, given appropriate safeguards for the privacy and safety of our hosts and guests, with the city.”

In Chicago, hosts are given the option to register as soon as they sign up on Airbnb.com and Airbnb then passes along that information to the city. However, as Lehane noted, there is also an option to opt out of registration in certain use cases such as a boutique hotel or bed-and-breakfast. This decision to share data with the city, however, has been met with some objections from Airbnb hosts who say this is a violation of their privacy, and they are suing the city to overturn the new short-term rental ordinance.

Last week, Airbnb also enacted an automatic limit to the number of nights a host can rent out his or her home in the European cities of London and Amsterdam that will begin in 2017. The company, however, hasn’t said exactly how it will do that on its platform.

Going forward, it’ll be interesting to see just how willing Airbnb is to work more with cities, and to compromise with them on sharing data, and designing the Airbnb platform in ways that could potentially curb illegal activity.

Rosenthal, for one, said, “They have a lot of control over what gets posted on their platform. They could certainly figure out if someone attempting to post [a listing] is violating the law or not, first of all.” She also said she wishes Airbnb would be more explicit about what the laws are for short-term rentals in New York City so users would be better informed. “That way, people can actually figure out if what they want to do is legal.”

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Photo Credit: A marketing image from Airbnb's website promoting New York City. Airbnb recently dropped its lawsuit against the city for the passage of a new law that would heavily fine its hosts who advertise illegal short-term rental listings on Airbnb's website. Airbnb